No swimming in the 'Shark Tank': Business benefits not worth the bite

Question:Would you have any suggestions about how to get on the TV show Shark Tank? Our business has real potential, and we think an investor like Mark Cuban could take us to the next level. — Anton

Answer: Don’t do it!

Like anything in life and business, nothing is all good or all bad, including being on a hit television show such as Shark Tank. Is the exposure invaluable? Sure. Are potential deals with investors such as Cuban and Mr. Wonderful rare? You bet. But let me suggest that the cons outweigh the pros.

This is so for a variety of reasons that have to do with equity investments generally and the TV show specifically.

Consider first the cons of equity investments (an equity investment is one where the owner of the business gives up of a percentage of ownership in exchange for capital from an investor):

*You will have a new partner. As an entrepreneur, your business is based on your vision, or that of you and your partners. But when you bring in equity partners, that money comes with strings attached. A major string is that the angels will expect to have a major say, and you may or may not like what they want to do with your business.

Too bad.

*Loss of control and profit. A correlation to the above is that, depending upon the size of the investment and the percentage share you are giving up, your equity partners can end up with controlling interest in your business. This also means they will take a proportional share of your profits, and that in turn can affect your credit, your ability to pay other debts, growth — a lot of things.

Beyond this, investments by the sharks specifically carry their own risks:

*They are sharks, after all. They aren’t called sharks for nothing. Oh sure, their help will likely be, as indicated, very valuable. But they drive a hard deal — both during the show as well as after it. According to a 2016 Forbes article, 73% of the 200-plus companies Forbes contacted who had gotten a deal on Shark Tank “did not get the exact deal they made on TV.”

Specifically, “About 43% of the people we spoke with said their deals didn’t come to fruition after the show. They attributed this to sharks pulling out of the agreement or changing the terms to ones that didn’t work for them. Others canceled deals after getting term sheets that included unappealing clauses,” Emily Canal wrote.

*Lack of leverage. Yes, the sharks want to be part of the Next Big Thing, but they also know the publicity these companies are getting is incredible, and ditto the prestige of having a world-famous investor. The sharks use that leverage to their advantage, and that equals an uneven playing field for the entrepreneurs who go on the show.

Herjavec (seated right) has been an avid investor on Shark Tank.(Photo: ABC.)

Of course, there are pros too:

*Publicity. Where else can you pitch your business in front of 8 million people?

*Assistance. The sharks are obviously fantastic entrepreneurs. They have skills and contacts you don’t have. And having met Lori Greiner and Barbara Corcoran personally, and having interviewed Robert Herjavec, I can say that they all are very committed to the success of their entrepreneurs.

*Money. Of course, the main reason to consider selling an equity share of your business is that it will infuse your business with some (probably) much-needed capital. No small thing, that.

The bottom line is that selling equity in your business at any time is a double-edged sword. When it works, it tends to be great, but when it doesn't, you can get eaten by the sharks.

Steve Strauss, @Steve Strauss on Twitter, is a lawyer specializing in small business and entrepreneurship who has been writing for USATODAY.com for 20 years. Email: sstrauss@mrallbiz.com. You can learn more about Steve at MrAllBiz.

The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.